On April 28th a deal was clinched between Slovakia and Ukraine to send natural gas from west to east, as part of efforts to reduce Kiev’s dependence on Russian gas. The amount in play, however, is unlikely to make much difference should the ultimate crisis scenario play out and Russian giant Gazprom turns off the tap.
Ukraine receives about half of its 55 billion cubic metres (bcm) annual natural gas supply from Russia. In recent months Gazprom nearly doubled the price Ukraine pays for it (in part by removing previous discounts). Yet the deal with Slovakia looks set to pump at a rate of only 3 bcm per year to start with, much less than officials in Kiev were hoping for.
“At the political level, it’s an important display of solidarity,” said Cillian O’Donoghue, a Brussels-based energy analyst for Fleishman-Hillard, but at the technical level there is real doubt whether Ukraine can survive a shut off. “If you do the math it doesn’t add up.”
Gazprom loomed large in the Slovak-Ukrainian negotiations. Slovakia recently renegotiated the terms and price of its own Russian gas and such contracts frequently include limitations on what Gazprom’s customers can do with gas once it is purchased. Bluntly, the Slovaks are not in full control of what they can do once the gas reaches their territory. Adding to the complications is that Slovakia’s state-owned gas transit company, Eustream, is also paid to transport Russian gas to customers in Western Europe. About 40% of Russian gas imported by Europe comes through Slovakia.
Ukrainian officials and Ukraine’s state gas transit company, Ukrtransgaz, originally pushed for Slovakia to reverse flow through four existing pipelines that connect the two countries. Bratislava was wary of such a move, fearing it would provoke its own dispute with Gazprom. After being watered down, the agreement calls for a much smaller (700 millimetre in diameter) and presently inactive pipeline to be upgraded. It runs from Vojany, Slovakia, to Uzhgorod in Ukraine and is expected to cost €20 million ($27.7 million) to fix. It is unlikely to pump at full capacity before next spring, well after the difficult winter season. And even once it does, much of its gas it is likely to be Russian anyway (albeit cheaper), coming via the Nord Stream pipeline that flows under the Baltic Sea into northern Germany, before being piped south.
Though the volume of gas from Slovakia into Ukraine will initially amount to a trickle, there are hopes it will rise and, when combined with the small amounts coming via Poland and Hungary, a total of 16 or 17 bcm could flow into Ukraine. This could begin to dent Ukraine’s dependence on Russia, but it remains unclear how much will actually be flowing through the pipes as the weather chills. The most optimistic estimates on the Slovak pipe have gas flowing in October.
Ukraine already owes Gazprom more than €1.5 billion for gas and Russian officials say they may start making the Ukrainians pay up front. Although the consensus is that Russia cannot afford to alienate its European customers by cutting supplies, Moscow has shown a predilection for gambling in recent weeks.
30 April 2014 | 8:27 pm – Source: economist.com